New collection agency laws to weed out the unethical

With Russian debt collection laws looking at a shake up Business RT spoke with General Director at Sequoia Credit Consolidation, Elena Dokuchaeva.

RT: There’s no particular legislative framework covering debt collection in Russia and the recent draft is the fourth year legislators have tried to bring about legislation.How have debt collection agencies been regulating themselves?When are we likely to see new laws?

ED:“There hasn't been a special law for collectors so far, but the Russian legislative system provides lots of other laws which are quite enough to rule the debt collection market. There is the “Personal Data Protection law", “Act on Antecedent”, “Bankruptcy Act” and many others. Recently, there has been a lot of work on a new law "About activity on recovery of overdue debts" with a working group within NAPCA (National Association of Professional Collection Agencies) headed by our agency – Sequoia Credit Consolidation. The law draft agreed upon by NAPCA and ARKB (Association for the Advancement of Collection Business), after the Ministry of Economic Development introduced some changes, is the subject of discussions among industry players and regulatory authorities and should be submitted to the Government later this year.”

Elena Dokuchaeva, General Director at Sequoia Credit Consolidation

RT: How does the new proposed legislation differ from previous versions?What new concepts does it encompass?

ED:“The latest version of the law provides a precise definition what a collector is and should put a stop to speculation about what is and what isn’t a collection agency and activity. It will also impose tough requirements on collection agencies – such as timeframes for calls and visits, a ban on posing debt information in envelopes, or using office numbers when debtors don’t want to discuss their issues in the workplace, as well as a requirement to agree on visits and interviews with debtors.In fact they may limit the ability to contact a debtor and may have a negative impact on collection efficiency.

What is most important is this law contains principles and regulation of collection activities, because, until now, it was not clear at all, who regulates collection activities. The law assumes industry self regulation, creation of a compensation fund, and professional indemnity.

Nevertheless it’s just a first version of the proposed law and there may be a lot of changes by the time it is finally passed. Still I consider the present version to be rather balanced and rule the rights and obligations of all the parties involved, not only collectors but also debtors, creditors etc.”

RT: How will this impact on the industry?

ED:“The law will provide a clear definition of collection activity, formulate requirements for market participants – who can be engaged in that activity, outline operating standards and principles, as well as outline rights, and obligations for all parties, including debtors.The new law will also rid the industry of those companies using unfair collection methods, who damage the collection industry unethical collection standards, and abuse the rights of debtors.

Furthermore the law clearly states that the lender has the right to work only with the collector who is a member of the professional body, which will in fact guarantee the collection agency’s conscientiousness.In my opinion self regulation will be based on NAPCA, which will more tightly control the activity of its members to meet legal requirements.But it is also possible that other forms of self regulation will occur which may adopt a more liberal position about the law, and it will be up to creditors to determine which agency they use.The other thing to note is that there will be an industry compensation fund and obligatory professional indemnity. This will require additional investment from collection agencies, and this alone will rid the industry of some unscrupulous players.”

RT: How will it impact on users of the services of debt collection agencies?

ED:“This law is developed to regulate the relationships between creditors, debtors and other parties involved like collectors. As for creditors, they will get a guideline how to select a collection partner as well as a legal framework on the main principles of cooperation between a creditor and a collector, which will contribute to collection industry development. The debtors will get additional protection of their rights.”

RT: There are sometimes complaints that debt collectors here use inappropriate methods to force debt repayment, such as personal threats by phone, for example. Will the new laws outline what is and isn’t applicable?

ED:“During communication with a debtor for debt collection, in the pre-trial stage (during the telephone conversation and communicationin person), the representative of the collection agency has the right to negotiate with the debtor on the execution of debt obligations in a proper way – pay part or in full, depending on the conditions specified in the contract between lender and borrower. A collector doesn’t have the right to call the debtor or to visit a debtor after 23.00 and before 7.00 am, to threaten or harass a debtor, or to use abusive or profane language in the course of communication related to the debt, to reveal or discuss the nature of debts with third parties (collection agencies are not allowed to contact neighbors or co-workers but only to obtain debtor’s location information), to misrepresent or deceive to seek unjustified amounts etc.”

RT: They say, the new bill almost copies the U.S. version. Do you think it’s applicable to Russian economic realities? In what areas will it be adopted for Russia?

ED:“The latest version of the bill has really very much in common with the U.S. Fair Debt Collection Practices Act. Unfortunately Russian and American economic realities differ, and just to copy their approaches to collection regulation may cause serious problems not only to collection industry but also to the banking one. Here in Russia we do not have any state-owned centralized dully updated population register, which makes it very difficult to get new debtor contact information or to contact a debtor. A lot of people living in villages do not have fixed line telephone communications, using only mobile phones which are very easy to change. The level of financial literacy of Russians is also very poor. All those peculiarities must be taken into consideration when adopting that law.”

RT: How will the new draft bill place Russian collectors internationally?

ED:“I think it will open the way to Russia for well-known international companies and increase the competition among collection agencies. At the same time it will increase international investor interest in Russian collection companies.”

RT: How will the new laws make Russian lending more efficient?

ED: “Provided it is well balanced it will contribute to the development of Russian lending. But if it doesn’t take into consideration Russian realities and becomes too “debtor protective” it may bring about an increase in delinquency and consequently increase interest on loans for borrowers, which may become an obstacle for lenders, and lending development, in the country.”